Analyst: Netflix Could Lose 30% Domestic Sub Growth in 201517 Dec, 2014 By: Erik Gruenwedel
Netflix could see a 30% decline in new subscribers in the United States in 2015 following the rollout of competing third-party subscription streaming services, according to a report by Strategy Analytics.
Netflix, which expects to end 2014 with more than 37.6 million paid domestic subs, saw third-quarter net sub additions in the U.S. of less than 1 million — well below projections.
With high-profile premium channel rivals HBO and Showtime launching standalone SVOD services in 2015, coupled with Sony’s PlayStation Vue OTT platform and pending services from Google and Apple, Netflix’s possible domestic subscriber attrition tops Strategy Analytics’ digital media predictions for next year.
“As a result of the proliferation of broadband and connected devices, consumers have more choices than ever in how, when and where they connect with music, games and video,” Michael Goodman, Strategy Analytics director of digital media strategies, said in the report. “As consumer adoption of these online alternatives grows, the degree of disruption felt by traditional distribution models is accelerating.”
Specifically, Goodman said the launch of competing SVOD services plus increased original programming from Hulu and Amazon means more competition across the board. In addtion, Goodman contends the U.S. market for Netflix is maturing based on the fact it remains in just 33% of domestic cable households.
"Contrary to Reed Hasting's opinion, everyone does not want to subscribe to Netflix," Goodman said in an email. "That is not to say that Netflix will not grow, just that it will grow slower. This is why international growth is so important."
Also, Strategy Analytics doesn't see Netflix as a direct replacement for cable. Netflix, despite the hype, still only offers a fraction of what is available via pay-TV, and this is not changing anytime soon. More importantly, media companies will continue to window their programming, first offering it on pay-TV and later on SVOD. Of course, then there's the economic factor of supply and demand.
"If Netflix ever really does replace cable, subscribers won't be paying $9 a month. It will cost more like $40 to $80 a month as studios and networks shift licensing fees to SVOD services. Plus your broadband bill will probably be a lot higher to compensate for lost video revenue. You still need the service provider to access OTT content. At the end of the day, both content owners and service providers will still get paid," Goodman said.
Conversely, BTIG Research analyst Richard Greenfield contends Netflix will reach 100 million global subscribers by 2017 — largely on the back of international growth.
Indeed, Netflix is launching service down under next year in Australia and New Zealand. Additional territories are planned as well.
“We believe the media ecosystem is at the beginning of significant structural change, with Netflix uniquely positioned to capitalize on the industry’s transformation,” Greenfield wrote in an Oct. 16 blog post.
At the same time, the analyst agrees that following SVOD service launches by HBO and Showtime, there's no reason not to expect a wave of similar platforms popping up from media companies and multichannel video program distributors.
“We have a hard time believing nobody is going to follow HBO and CBS’s direct-to-consumer lead in the months ahead,” Greenfield wrote.